I did NOT want to write this but I had read a few articles around the same subject even before some other info surfaced last week in the press. So ‘here goes’ anyway.

I DO look at several of the financial statements of the endurance market players on a regular basis and have also exchanged a few emails with some of the analysts in the sector from time-to-time. I certainly do NOT claim to have anywhere near the same level of market understanding as analysts do.

The following comments are my personal opinions and facts are linked to, as appropriate.

RECENT FINANCIAL BACKGROUND

TomTom report through their 3 business areas: telematics; automotive & licencing; and CONSUMER. For those who care to look deeper, the official figures (here) also break out CONSUMER into AUTOMOTIVE HARDWARE & CONSUMER PRODUCTS. The latter is where the SPARK 3/RUNNER 3/GOLF 2/TOUCH/BANDIT sit and I’ve highlighted, below, the key bits to glance at.

HAROLD GODDIJN (CEO) – “Our strategy is to build on our navigation technologies to provide location-based content, software, and services to business customers, with high margins and recurring income.”

Elsewhere: “TomTom intends to repurchaseordinary TomTom shares for an amount up to €50 million, representing 2.5% of total issued share capital.”

Elsewhere: “Hardware revenueswere lower than planned because of disappointing Sports sales. The wearables market has fallen short of expectations. Because of this and because we want to focus on our Automotive, Licensing and Telematics businesses, we are reviewing strategic options for Sports.”

Elsewhere: “Goodwill impairment: The difficult market circumstances combined with lower sales than planned for the second quarter has resulted in a downward revision in the future profitability projections for Consumer Sports. As a result, TomTom recorded a full impairment charge against the goodwill of the Consumer segment of €169 million in the second quarter 2017. This non-cash impairment charge is included within operating income (loss). The goodwill that was impaired was originally recorded at the time of the acquisition of Tele Atlas in 2008.”

Elsewhere: “The risks associated with building a multi-product Consumer business were acknowledged in TomTom’s Group Risk Profile (see 2016 Annual Report). The weaker than expected Sports revenue is a partial realisation of this risk. Taking the decision to evaluate our strategic options for Consumer Sports gives rise to a change in this risk. The most significant changes are the possible negative impact on our brand name, the unnecessary loss of talented people employed by our organisation and the negative market response to the TomTom Sports business itself. We have anticipated these risks and prepared appropriate risk responses that include investigating the strategic options for Consumer Sports as well as proactively engaging stakeholders to minimise TomTom organisational and product market disruption.

RECENT PRODUCT BACKGROUND

Last year TomTom released:

The TOUCH band. The ‘fat’ sensor & activity tracker – for want of a better short summary

The TomTom Spark 3/Runner 3/Adventurer – essentially the previous year’s model with a few extra nice bits. I’d see the key selling points as accuracy, onboard music & navigational functionality all of which appeal in different measures to key target markets.

Golfer 2

A revitalised app/web infrastructure which I seem to remember recently passed the 1 million all-time user registrations mark. Nice but still a ‘catch-up’ move.

TomTom (and Polar) sell disproportionately betterin some European markets than would be expected based on their US market shares. Ie they have some key geographic strengths.

Often the market sentiment (share price) is a better predictor of future profitability than analyst or board comments. The following chart does not take into account relative movements against the sector or against the market as a whole but, hey!, an upwards trend isn’t usually too bad!!

Whilst stock/inventory is UP, it is still broadly similar to the same period in the previous year.

Borrowing and Provisions are lower whilst deferred revenue is higher.

Sales costs, marketing costs and R&D costs are all notably higher compared to previous year. ie TomTom ARE investing in the future.

OPINIONS

So clearly there is at least a blip in consumer product sales (Combined: Runner/Adventurer/Touch/Golf/Bandit) but that blip is also happening in automotive. TomTom have formally stated that they ARE reviewing their sports division but even if they had failed to state that a review was underway in their stock exchange filings, they would (or should) be reviewing the performance in any case. It’s a statement of the obvious for a well-run company – and this is the single statement that many of the other journalistic pieces have seized upon.

TomTom is a profitable, cash-generating company (good). It has not paid a dividend this time round (bad) but has bought back shares (generally good).

TomTom has decided to take a financial hit now with “goodwill impairment”. That surely could have been taken at any time; this timing is noteworthy. I’ve often noticed with OTHER companies that bad one-off financial hits coincide with, for example, the departure of a key executive. With the arrival of a replacement executive the figures miraculously bounce back to normality. The truth, of course, is that the ‘normality’ of the true trading position has not changed that much!! I’m not suggesting that anyone in TomTom is leaving – I have no idea about that.

Pretty Colours – Adventurer & Runner 3 / Spark 3

The figures do notshow the profitability of the SPORTS division however I would assume that it is still profitable. I would be VERY surprised if TomTom simply stopped selling sports watches. Could they sell the division to someone else? (A: yes, with reservations) or float it off separately? (A: probably not a good idea) or licence some of the technology? (A: probably) or sell off specific products (A: probably not for that much money).

My suspicion would be that the TOUCH product was more the culprit than the RUNNER3/SPARK3 series and that TomTom mistimed the entry of the TOUCH – in the sense that it was late as a basic ‘tracker’ with only one key differentiator. If the RUNNER3 didn’t meet expectations then the question to be asked is “Was it much different to the RUNNER2?“.

My further suspicion is that we will still see a new and improved RUNNER 4/SPARK 4/ADVENTURER 4 in a few months time. I don’t really have an opinion on the GOLF 2 other than it can’t have cost that much to make it as it is the ‘same’ shell and probably similar firmware as the Runner.

FWIW I’ve used the BANDIT and it’s quite nice but I suspect drones, GoPros and Garmin VIRBs are too much competition there. Perhaps that product still consumed internal resources more than it should have in 2016/7?

REMEMBER: Whatever you might think about TomTom’s sports products they DO seem to meet apparent market needs of specific elements of desired user functionalities very well eg onboard music, navigation, fat sensing, GPS accuracy and oHR accuracy. And that’s probably why quite a lot of people like their TomTom product. I would suspect that TomTom appeal to more of a “lifestyle market” and perhaps ‘aesthetics’ are important there as well.

TomTom (and Polar) probably have better-performing hardware than Garmin but might be considered to be less competitive in their BREADTH of features and SHELL/BODY choices for some markets.

If I were Mr TomTom, based on my assumptions above, I would focus on widening the geographic appeal and technical development of the Runner/Spark/Adventurer/Golf series. What do I know?

OPINIONs

I do NOT think TomTom will exit the sports market.

Q: Would I still buy a Runner 3/Spark 3/Adventurer?

A: Yes. It’s a great product if the features match what you are looking for. Usually a GREAT price too.

TomTom watches are very much in the same place Blackberry/Windows are/were in the smartphone market. They have a product that can do more or less the same thing as other competitors in the market but have nothing that really differentiates them from their bigger and more well-known brethren. They bring something unique (on-board music and headphones), but everything else is either done better (arguably Polar and Garmin) or offer overwhelming options in the same cost category (Garmin,Fitbit). Without being something grander for what they are making, why bother buying one? Pretty much any smartwatch can track simple runs (for the casual runner) and also can download music (Gear s3 for example), while a dedicated runners watch within the realm of tomtom’s spark line can run circles (pun intended) around it. Polar’s M430 for example is cheaper which a plethora of options baked in, but lacks the music. My opinion, we’re about 1-2 years before the watch market “purge.” And this goes across the spectrum from Smartwatch to Sportwatch and all the gradients in between. Fitbit,Polar,TomTom,Suunto,Samsung,Apple,Garmin and any else I missed, you’re gonna see some go out of business, be bought by another company; or outright merge to survive. Personally, I… Read more »

some good points there as always Justin.
yes the market is approaching maturity. 1-2 years…why not.
it’s still growing tho and that’s evidenced by the new androidwear watches coming this year.
the threat is companies like Xiamio (spelling?) at some point they will produce something nearly excellent for £50. bang goes Garmin’s ability to charge a premium for pretty much the same thing.
personally I think something like polar merging with wahoo would be good. one good at running the other good at biking. develop a common hardware/app/firmware platform. KERCHING!.

Polar and Wahoo would be a terrible combination. Wahoo are extremely agile and have a fix as you go atitude whereas polar are more of a traditional design/test up front kind of company. If Polar could work the way Wahoo does they’d have transformed themselves by now with the v800, but they didn’t, they still have exceptionally slow release cycles by modern standards. I’ve said it many times that Polar make tools not toys and they may be the only company in this space focussed on accuracy rather than data collection. Sadly most of us buy toys rather than tools, hence the success of the Fenix line, and so I’d expect Polar to go within a few years too which will be a huge loss to the industry.

Well, just taking your comment in my response, it would really depend on who does the buying first wouldn’t it? If say Polar were to do the buying of Wahoo, it becomes simply the integration(s) of what tech Polar could make use of (or simply at minimum owning the brand/install base). Wahoo on the other hand has no sportwatch, not known for it’s GPS or fitness tracking ecosystem (beyond the chest strap and bike products). Even then, there it is, running and biking are the only things they are working with. Add polar’s precise tracking (which is debatable, my m430 for example gaged my run vo2max at 65. Sounds great, but i’m no 65, more like 50, 55 at my peak) Even after a number of runs that number stayed north of 60. I think this is indicative of the whole market spread right now; those that have married many things within the product (like Garmin and its plethora of options, whether they all work or not) rule supreme; whereas piecemeal products that do really good (or above average) flounder because…well why buy this tool that only does a few things well when I can get this other one that… Read more »

yes I was meaning more that the product sets are fairly complimentary. the overlap are the cycling watches but you know what would happen there.
Dave is probably right tho about how the companies work internally. there are many factors that would make a merger work and that is one that could be a deal-breaker.

TomTom may be profitable, but just barely. Their net profit looks to be 1% of sales. You can see that in their eye-popping P/E ratio in the quote you copied above. I don’t know where all the money is going, but it’s not going into the watch. As you way all of their watches use the same basic form, with the odd pod and changeable straps. I got a used Runner 1 last year and I can’t really see any reason why I would upgrade to a Runner 3. The Adventurer with the little map might be nice though. But all are fugly. You mention that TomTom has little market presence in the US. I can confirm. I have never seen on in the wild, other than the one I bought. I see a fair number of Garmins at races, but mostly I see Android or Apple if people wear a watch at all. Dedicated running watches are a niche product, and TomTom has a small slice of that pie. Should the overall market shrink further because of inroads from Apple or Android, TomTom won’t make it. Related to the rest of TomTom’s business, they are the source of map… Read more »